Citizens Advice slams ‘logbook loans’

The number of borrowers securing loans against their vehicles could hit 60,000 this year, a debt charity has warned. So-called’ logbook loans’ are an expensive and risky way to borrow. Interest can be around 400% APR or higher, and while you’re paying off the loan, the lender effectively owns your car. For example, if you borrowed £1,500 and paid off £55 a week for 78 weeks – a typical term for this kind of loans – you’d pay back more than £4,250. And if you failed to keep up with your repayments, you could lose your car. Crucially, you don’t have to have used a logbook loan to be affected. If you bought your car without realising it had been used previously to secure a loan, it could be seized from under you.

Numbers soaring

Research from Citizens Advice has found a marked increase in the number of people borrowing against their vehicles, and predicts the figure could almost hit 60,000 by the end of the year – representing a 60% increase when compared to 2011. A Freedom of Information request to HM Courts & Tribunals Service found almost 37,000 logbook loans were taken out in 2011, followed by approximately 41,000 in 2012 and around 50,000 in 2013. If loans continue to be handed out at the same rate as they were in the first two months of 2014, Citizens Advice estimates the total for the year will reach 59,286.

‘On the rampage’

Gillian Guy, Citizens Advice chief executive, said: “Logbook lenders are on the rampage. Lenders have been cashing in on people’s difficulties getting credit as they struggle to make ends meet. Aggressive behaviour and excessive charges are pushing some people to bankruptcy.” The charity says people have even complained about lenders issuing death threats and sexually harassing clients. One bureau helped a mother with a disabled son who was left stranded on the roadside on her way to work by a logbook lender. The tow truck driver blocked her car, reached through the car window to take the keys and took the car without allowing her to remove her possessions.

Staggering amounts

The average logbook loans reported to the charity is £1,286, but some people had borrowed as much as £19,000, while others had paid back up a staggering eight times the original loan by the time they sought help. According to Citizens Advice, 17% of borrowers did not have the terms and conditions of the logbook loan explained clearly to them. Some 9% of lenders did not make proper checks to ensure a borrower could afford a loan, while 8% of borrowers were hit by high charges when they could afford repayments. Worse still, almost a third (28%) of borrowers were treated unfairly by the lender and 14% experienced harsh debt collection practices. Worryingly, 17% had their car taken despite not being the original borrower.

‘Toxic’ lending

Citizens Advice is calling for a change in the law to prevent lenders from taking a borrower’s car without a court order. It is also demanding changes to stop second hand car owners from being penalised for loans they never took out. Gillian Guy said: “The law needs to change. Rules that allow lenders to take cars without warning and from people who haven’t even taken out the loan should be confined to the history books. “Regulators and government have quite rightly put payday lending in the spotlight but it is important other forms of credit are also subject to a strong crack-down and that toxic forms of lending aren’t allowed to flourish.”

If you need help

If you’re struggling with debt, you should help as soon as possible. It can be a tough process, but there’s plenty of free and confidential help and advice available to you. Remember, if you are in debt, you should never pay for help. Citizens Advice offers independent, confidential and free advice on debt and money issues. It can be found online here or here for Scotland. On the websites you’ll find information about your local branch, where you can make an appointment to speak to someone, or arrange a home visit. StepChange is also free and confidential, and can offer anonymous advice over the phone or online. You can reach StepChange on 0800 138 1111 (Monday-Friday, 8am-8pm; Saturday 9am-3pm) or find it online here. National Debtline will give you free, expert advice over the phone and online, and can send you a free self-help information pack. You can find National Debtline online here or reach it on the phone on 0808 808 4000 (Monday-Friday, 9am-9pm; Saturday 9.30am-1pm).